19 June 2024
Децентралізація
Budget tools for economic recovery and development in 2024
Budget tools for economic recovery and development in 2024

Ukraine’s economy demonstrates extraordinary resilience in the difficult and unprecedented conditions of the long-term strife against the military aggression and its numerous destructive consequences. Forecasts and estimates of various experts differ in figures and assumptions, however, in spite of the challenges, they all acknowledge the growth dynamics. Thus, according to the World Bank, in 2023, this indicator will comprise 3.5 percent, with positive dynamics expected to be preserved in the subsequent year as well.

How can Ukraine preserve its economic potential nowadays with the excessive effect of risk and uncertainty factors, scanty resources, and an extremely important need in the partners’ support? How can progressive recovery dynamics be secured? Which tools will Ukraine use for that in 2024 and what will their efficiency be?

This article commences the cycle of publications dedicated to the analysis of budget mechanisms aimed at securing economic growth and development, tools and possibilities for business and entrepreneurship, rules for large investors, stimulating levers for the agroindustrial complex, implemented with the Law of Ukraine “On Ukraine’s State Budget for 2024” dated November 09, 2023 No. 3460-ІХ.


 

Part І:

Budget programs for business support and entrepreneurship development in 2024

 

During the ongoing military aggression, destruction of infrastructural and industrial facilities, loss of resource and human potential, a considerable series of challenges and systemic risks, though with resilience potential preserved, and in spite of the pessimistic scenarios, Ukraine’s economy currently has the dynamics of progressive recovery. According to the State Statistics Service of Ukraine, the real GDP decrease based on the 2022 results was smaller than expected at the beginning of the military invasion. For eight months of 2023, according to Ministry of Economy, this figure already comprised 3 percent, while the macroeconomic forecasts ascertain the preservation of positive dynamics.

Such results of economic activity growth are caused by the fast adaptation of enterprises to the new operating conditions, recovery of the stable operation of Ukraine’s energy system, gradual activation of domestic demand, and UAH exchange rate stabilization. In spite of this process being uneven, the results of business expectations of enterprises in 2023 demonstrate features of recovery and investment activity. Thus, to accelerate the recovery speed and prepare the ground for further sustainable economic growth, supporting business and developing entrepreneurship became one of the state priorities. This is what a series of important budget programs planned for implementation in 2024, are focused on.

The Law of Ukraine “On Ukraine’s State Budget for 2024” dated November 09, 2023 No. 3460-IX envisages the implementation of a series of important budget programs to support large investments, small and medium entrepreneurship entities, to support the agricultural sector (Fig. 1), etc. It is also worth mentioning that the quantity of new economic development support programs increased, compared with 2023.

Upon successful implementation of budget programs, the state support in business and entrepreneurship development will ensure positive impact onto the economic development of both the regions and communities. In particular, using the state assistance, small business will be able to create or expand production, thus creating conditions for people’s employment and living on the territory of communities and ensuring increase of local budgets’ revenue.

 

Fig. 1. Amount of financing of state programs in business support and development, envisaged in the State Budget for 2024, million UAH[1]

 

The budget program Ensuring Entrepreneurship Development Fund Operation for provision of state financial support to entrepreneurship entities in Ukraine, focused on entrepreneurship development, increase of production volumes, export, import substitution, development of high-tech production, energy efficiency, innovations’ implementation, financing agricultural goods’ manufacturers for conduction of agricultural activity during the martial law, as well as provision of state financial support to entrepreneurship entities under finance lease agreements in 2024 stipulates 18,000.0 million UAH[2].

The Entrepreneurship Development Fund implements the state programs “5-7-9 Affordable Loans” and “5-7-9 Affordable Finance Lease” for reducing the cost of loans for small, including micro entrepreneurship entities, and medium entrepreneurship as per the procedures approved with CMU Resolution “On provision of state financial support” as amended, dated 24.01.2020 No. 28.

From the commencement of the martial law, for the purpose of supporting small entrepreneurship entities, the possibility to use the “5-7-9 Affordable Loans” state program was expanded to agricultural goods production area to provide for activities on spring and autumn field works. The program enabled large business and state enterprises to obtain loans for reconstruction of entities’ property, plant and equipment destroyed as the result of the military aggression. The maximum amount of loan for these purposes was increased to 60.0 million UAH, while for agricultural manufacturers it was increased to 90.0 million UAH.

Throughout the whole life of the “5-7-9 Affordable Loans” state program, 71,013 loan agreements were signed for the overall amount of 229.5 billion UAH. During the martial law period in Ukraine, 36,191 loan agreements were signed in frames of this program for the overall amount of 139.8 billion UAH[3].

The Issuing Grants for Business Establishment or Developmentbudget program stipulates free financial aid in the form of grants to entities for the following purposes:

  • creation or development of processing enterprises;
  • creation or development of gardening, growing berries, and vine-growing;
  • creation or development of greenhouse business.

The amount of financing the “Issuing Grants for Business Establishment or Development” budget program aimed at creation of new jobs, support of agricultural goods manufacturers, increase of the volume of agricultural production and ensuring food security in 2024 from the State Budget general fund will comprise 1,370.0 million UAH. In 2024, funds returned by the State Employment Center in the amount of 1,277.0 million UAH for repayable financial aid to the State Mandatory Unemployment Social Insurance Fund for payment of unemployment aid[4] will be the source of financing grants.

In 2024, the new state program “Affordable Factoring” will be implemented, becoming one more important tool to support micro, small, and medium business in Ukraine during the ongoing military aggression. This program will enable enterprises to cover their daily expenses, reduce the risk of non-payments from counterparties, and improve the resilience of the whole goods supply chain.

Financial support of entities under factoring agreements will envisage compensation of the factoring interest rate on the level of up to 13 percent per annum. The authorized factor will provide factoring to an entity in the amount of up to 95 percent of its accounts receivable, but the amount of financing may not exceed 150 million UAH including funds received under the programs “5-7-9 Percent Affordable Loans” and “5-7-9 Percent Affordable Finance Lease”.

The Support of Investment Projects with Substantial Amount of Investments budget program is implemented to attract investors through the implementation of state support for large-scale projects and of the Law of Ukraine “On state support of investment projects with substantial amount of investments in Ukraine” as amended in 2024. It is planned to allocate 3,000.0 million UAH for its fulfillment. Funds will be channeled to:

  • construction of engineering and transport infrastructure facilities – 1,200,000.0 thousand UAH;
  • compensation of the cost of engineering and transport infrastructure facilities built by the applicant or investor – 1,200,000.0 thousand UAH;
  • compensation of costs for connection to utilities and transport networks required for implementation of an investment project with substantial amount of investments – 600,000.0 thousand UAH.

Part 2 of Article 4 of the Law of Ukraine “On state support of investment projects with substantial amount of investments in Ukraine” stipulates that the overall amount of state support for implementation of an investment project with substantial investments is specified in a special investment agreement and shall not exceed 30% of the planned amount of substantial investments under an investment project with substantial investments[5].

The usage of these funds will enable potential applicants/investors with substantial investments to do the following:

  • activate their own investment activity, including commencement of the implementation of such projects, which will make positive impact onto the activity of economic agents, the national economy and that of regions such projects will be implemented in;
  • ensure construction of engineering and transport infrastructure facilities that will help improve the logistics and reduce the expenditures of the applicant/investor with substantial investments;
  • ensure multiplication effect for the related sectors, because the increase of investments causes the increase of production output, GDP, etc.;
  • ensure creation of new jobs, which is an important component of social policy, allowing to employ, among others, internally displaced persons, and prevent the loss of the population able to work due to migration processes;
  • ensure revenue to budgets of all levels from the activity in frames of implementation of projects with substantial investments, as well as after commissioning the objects of investments, which will allow balancing budget expenditures and revenues.

Currently, as per Article 9 of the Law of Ukraine “On the grounds of the state regulatory policy in economic activity”, Ministry of Economy of Ukraine published the draft CMU Resolution “On approval of the Procedure and methodology of evaluation of an investment project with substantial investments”. The draft regulatory act was prepared for aligning the mentioned procedure with the current legislation as well as in connection with the implementation of a simplified procedure for applications returned to Ministry of Economy as per clause 2 of Section ІІ “Final and Transitional Provisions” of the Law. The draft envisages the approval of the new version of the procedure and methodology of evaluation of an investment project with substantial investments, standardization of the simplified procedure, and supersedes CMU Resolution dated July 28, 2021 No. 819.

TheState Incentives for Creation of Industrial Parks budget program planned to channel 1,000.0 million UAH for financing of identified and attraction of new investment projects with substantial investments for the recovery and development of Ukraine’s economy. Industrial parks play an important role in the formation of innovational knowledge and technologies, as they facilitate attraction of investments, activation of entrepreneurship, creation of new jobs, minimization of transaction costs, etc. At the same time, their development requires support and facilitation at the national, regional, and local levels, as well as creation of proper mechanisms and conditions for their activity. The budget program stipulates expenditures for the creation and functioning of the Industrial Parks Development Office, arrangement of industrial parks, and/or construction of support infrastructure facilities, and other activities required for the creation and operation of industrial parks[6].

The Implementation by Ukrainian Financial Housing Company Private Joint-Stock Company of the state housing policy through housing provision to Ukrainian citizens budget program stipulates 1,443.7 million UAH for provision of affordable housing to Ukrainian citizens as per the Conditions for Provision by Ukrainian Financial Housing Company Private Joint-Stock Company of affordable mortgage loans to Ukrainian citizens, approved with CMU Resolution dated August 02, 2022 No. 856. Currently 113 thousand applications for privileged housing have been filed that are not covered with the financial resource. Since the start of the mortgage program, the portfolio of issued mortgage agreements comprises 3,181 thousand UAH, while the average cost of one agreement comprises 1,500 thousand UAH[7].

The Support of Internal Demand for Domestic Goods and Services budget program stipulates allocation of 3,000.0 million UAH for increasing the demand for domestic goods purchased from domestic manufacturers and/or their dealers, through partial compensation of their cost. Namely, partial compensation is provided for the cost of utility and special machinery, public transport, energy equipment, elevators and elevator equipment manufactured in Ukraine. 4.95 million UAH are planned for institutional capacity building for preparation of public-private partnership projects.

The agroindustrial complex that provided approximately 40 percent of foreign currency revenue from goods export prior to the commencement of the military aggression against Ukraine, is currently suffering substantial losses due to the disruption of export value chains, decrease of areas under crops, destruction of auxiliary infrastructure, and other negative factors. The State Budget for 2024 stipulates a substantial amount of funds for supporting agricultural manufacturers to ensure the recovery and support of the sector.

TheFinancial Support of Agricultural Products’ Manufacturers budget program will finance 205.0 million UAH for the development of the sector. The program is focused on ensuring Ukraine’s food security, support of financial resilience of agricultural products’ manufacturers through recovery and upgrade of irrigation systems, as well as increase of governance efficiency and transparency. Budget funds will be channeled to state support in the form of budget grants to agricultural products’ manufacturers who use irrigated lands and conduct agricultural activity using hydrotechnical irrigation, for enhancing agriculture efficiency in the conditions of climate change, stimulation of increase of irrigated lands’ area, and increase of gross manufacturing of agricultural products.

The Compensation of costs for humanitarian demining of agricultural lands” budget program stipulates 2,000.0 million UAH in the State Budget for 2024[8]. Operators will be competing for these funds on Prozorro tenders, which will form the basis for the development of this market in Ukraine. A competition will be announced for demining selected land plots, the winner operator will be able to receive the relevant funds based on the tender results. Only those agricultural producers that operate officially and pay taxes, will be subject to demining for budget funds. It is planned to announce the first tenders in April 2024, and prior to that, CMU will approve the mechanism of payment for the operators’ services and determine the amount of the percentage of demining cost to be reimbursed to farmers. Communities will play a separate role in the selection of priority land plots for demining.

TheSupport of Farmers and Other Agricultural Goods Manufacturers budget program stipulates the allocation of 796.0 million UAH through a budget grant per unit of cultivated agricultural land (1 hectare) for conduction of agricultural activity on territories where military actions are finished, their possibility is terminated, and the temporary occupation ended. The implementation of the program tasks will enable the resumption of the agroindustrial sector on the deoccupied territories and increase of Ukraine’s food security. Considering that small agricultural producers are the main source of the country’s food security and main manufacturers of goods for domestic consumption, this is what 20.0 million EUR will be channeled for in frames of EU budget support to Ukraine in 2024.

ThePartial compensation of the cost of domestic agricultural machinery and equipment budget program stipulates 1,000.0 million UAH to be channeled for the creation of favorable conditions for investments into the agroindustrial complex development, increase of agricultural producers manufacturing goods for the agroindustrial complex, expanding the range of domestic machinery and equipment, creation of additional jobs in agricultural machine-building[9]. In frames of program fulfillment, it is planned to provide partial compensation of the cost of domestic agricultural machinery and equipment, including for acquisition of grain combine harvesters, tractors, tillers and sowing machinery, agricultural equipment, grain trailers.

 

Table 1. Budget programs for entrepreneurship support and development in 2024

Budget program (BP) name
BP objective
BP task
Amount, million UAH
Area of funds’ usage
Block 1. Loan support
ENSURING ENTREPRENEURSHIP DEVELOPMENT FUND (EDF) OPERATION
Provision of state financial support to entrepreneurship entities, aimed at entrepreneurship development, increase of production and export volume, import substitution, development of high-tech productions, energy efficiency, implementation of innovations, financing agricultural goods manufacturers for agricultural activity during the martial law
Facilitation of creation of new jobs, business expansion, creation of new enterprises, return of labor migrants
18,000
Partial or full compensation by EDF of interest under loans provided to entrepreneurship entities
Partial compensation by EDF of remuneration under finance lease agreements entered with entrepreneurship entities
Provision of state financial support to entrepreneurship entities under finance lease agreements
Facilitation of development of entrepreneurship entities, increase of production and export volumes, import substitution, high-tech production, implementation of innovations
Coverage of EDF expenses for follow-up and ensuring provision of state financial support to entrepreneurship entities
Block 2. Grant support
ISSUING GRANTS FOR BUSINESS ESTABLISHMENT OR DEVELOPMENT
Creation of new jobs, support of agricultural goods manufacturers, increase of production volume of agricultural products and ensuring food security
Development of processing industries through provision of free state assistance in the form of grants for establishment or development of processing enterprises, creation of jobs
2,647
Provision of free state assistance in the form of grants for establishment or development of processing enterprises
Development of agricultural goods manufacturers through provision of free state assistance in the form of grants for establishment or development of gardening, berry farming, and vine-growing, increase of planted areas
Provision of free state assistance in the form of grants for establishment or development of gardening, berry farming, and vine-growing
Development of agricultural goods manufacturers through provision of free state assistance in the form of grants for establishment or development of greenhousing, increase of areas planted with vegetables under coverage
Provision of free state assistance in the form of grants for establishment or development of greenhousing
Block 3. Support to agricultural sector
SUPPORT TO FARMERS AND OTHER AGRICULTURAL PRODUCTS MANUFACTURERS
Stimulation of development of farmers and other agricultural products manufacturers, enhancement of the level of Ukraine’s food security and economic resilience
Ensuring uninterrupted manufacturing of agricultural products
796
Budget grant per unit of cultivated agricultural land for conduction of agricultural activity
Special budget grant for keeping cattle (cows) of all types of use
FINANICIAL SUPPORT TO AGRICULTURAL PRODUCERS
Increase of volumes of agricultural products’ manufacturing, facilitation of development of agricultural market and provision for food security.
Stimulation of development of agricultural products’ manufacturers, increase of profitability of agricultural production
Stimulation of development of family farms
205
Budget funds are channeled for state support in the form of free budget grant to agricultural products’ manufacturers
Stabilization of gross production of agricultural crops
Increase of agriculture efficiency in the conditions of climate change
PARTIAL COMPENSATION OF COST OF DOMESTIC AGRICULTURAL MACHINERY AND EQUIPMENT
Increase of agricultural production volume, increase of productivity in agriculture, facilitation of development of agricultural market and provision of food safety
Stimulation of development of entities manufacturing agricultural products, increase of profitability of agricultural production
1,000
Provision of entities with domestic machinery and equipment for the agroindustrial complex through partial compensation of the cost of machinery and equipment purchased from domestic manufacturers and/or their dealers
Increase of volumes of manufacture and sale of domestic products for agricultural sector
Upgrade of machine and tractor fleet of entities manufacturing agricultural products, increase of their purchase capacity
 
Block 4. Support to investors
PROVISION OF STATE SUPPORT FOR IMPLEMENTATION OF INVESTMENT PROJECTS WITH SUBSTANTIAL INVESTMENTS
Provision of state support for implementation of investment projects with substantial investments
Creation of favorable conditions for attraction of substantial investments to Ukraine
3,000
Provision of state support for implementation of investment projects with substantial investments on construction of engineering and transport infrastructure facilities (roads, communication lines, means of heating, gas, water, and power supply, engineering services)
Creation of new jobs
Provision of state support for implementation of investment projects with substantial investments through compensation of the cost of engineering and transport infrastructure facilities (roads, communication lines) built by the applicant or investor with substantial investments
Stimulation of economic growth of regions and growth of competitiveness of Ukraine’s economy
Provision of state support for implementation of investment projects with substantial investments through compensation of expenses for connection to engineering services and transport networks)
STATE STIMULATION OF INDUSTRIAL PARKSCREATION
Creation of conditions for attraction of domestic and foreign investments through state stimulation of creation and operation of industrial parks
Provision of state support to industrial parks for advanced development of Ukraine’s economy in the long-term perspective and increase of revenue to state and local budgets, and financing social initiatives, as well as creation of favorable investment climate
1 000
Creation of industrial parks and/or ensuring construction of support infrastructure facilities required for creation and operation of industrial parks
Provision of full or partial compensation of loan interest rate for creation and/or conduction of economic activity within industrial parks
Support to initiators of creation, managing companies, and participants of industrial parks, as well as facilitation of implementation of the Industrial Parks Development Strategy
Provision of compensation of costs to initiators of creation of industrial parks – entities, managing companies and participants of industrial parks for connection to engineering services and transport networks
Creation and operation of the Office for Industrial Parks’ Development
Block 5. Support for housing construction (acquisition)
IMPLEMENTATION BY UKRAINIAN FINANCIAL HOUSING COMPANY PJSC OF STATE HOUSING POLICY THROUGH HOUSING PROVISION TO UKRAINIAN CITIZENS
Implementation of state housing policy through housing provision to Ukrainian citizens though compensation to Ukrainian Financial Housing Company PJSC of a part of the interest rate under loans secured by mortgage subject
Provision of Ukrainian citizens with affordable housing
1,443.7
Provision of affordable mortgage loans to socially vulnerable categories of people requiring extra state support, and all Ukrainian citizens in need for improvement of housing conditions

Thus, in case of success, the implementation of budget programs’ tasks in business support and entrepreneurship development will have a positive impact onto the economic development of communities in the today’s difficult situation. It is worth noting that the existing mechanisms of economic recovery and development will be updated in terms of:

  • expansion/strengthening of state support areas (implementation of energy efficiency measures, stimulation of development of processing enterprise and agricultural sector in general, implementation of investment projects with substantial investments and creation of industrial parks, etc.);
  • support of entities conducting economic activity on territories that suffered from considerable destruction (reconstruction of entities’ property, plant and equipment destroyed as the result of the military aggression: recovery and repair of the energy infrastructure damaged due to the military actions; extension of existing loans for financing the floating capital, etc.);
  • increase of financing from the State Budget of Ukraine and identification of additional sources of programs’ coverage (possibilities to use the cash from the Mandatory Unemployment Social Insurance Fund, Ukrainian Financial Housing Company PJSC, etc.);
  • implementation of new state programs (state program on supporting internal demand for domestic goods and services, compensation of expenses for humanitarian demining of agricultural lands, etc.), as well as simplification of procedures of filing applications and participation in current state programs.

Understanding the problems of business operation in the conditions of the ongoing military resistance and systemic challenges, it is considered advisable to use with maximum efficiency the possibilities for economic recovery and development, defined by the program documents in the State Budget for 2024. The broad range of support programs enables communities to determine which assistance local business can count on, and, accordingly, to be involved into informing entrepreneurs and facilitation of implementation of such programs. Such state support can be especially relevant in communities that have limited own resource to support business but are interested in maintaining efficient cooperation and are ready to facilitate local business development. The synergy between local government bodies and business can help achieve the common objective – progressive economic recovery and development, which will help increase the well-being of communities and quality of life of their residents. This is where one of the key principles of local economic development lies, which nowadays is becoming important in the formation of communities’ resilience, enhancement of their capacities and self-sufficiency.


[8] Ibid.

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